Cost Channel, Interest Rate Pass-Through and Optimal Policy under Zero Lower Bound
Published By: Indira Gandhi Institute of Development Research, M | Published Date: July, 01 , 2016This paper analyzes optimal monetary policy under zero lower bound in the
presence of cost channel. Cost channel introduces trade-o¤ between output and
inflation when economy is out of ZLB. As a result, exit time both under discretion
and commitment is endogenous in the presence of cost channel. Paper also finds that
commitment outperforms discretion by promising future boom and inflation and a
T-only policy closely replicates commitment both under presence and absence of
cost channel.
Author(s): Siddhartha Chattopadhyay, Taniya Ghosh | Posted on: May 04, 2017 | Views() | Download (352)